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California Could Be a Model for Gig-Economy Fairness

(Bloomberg Opinion) -- California’s new governor, Gavin Newsom, faces an early policy dilemma: whether to take action to expand the rights of workers in the gig economy. Newsom’s allies in organized labor support reform; his technology-industry backers oppose it. A compromise is possible, and that’s what Newsom should propose.

In the U.S., at least 1.6 million people — Uber and Lyft drivers, Handy.com repairmen, DoorDash pizza deliverers — earn money through online-service platforms. Since they are classified as independent contractors and not employees, these workers do not receive benefits like overtime or sick pay, aren’t covered by minimum-wage laws, and lack collective-bargaining rights. In the U.K., a lawsuit filed by two Uber drivers who say they’re entitled to the national minimum wage and paid holidays has reached the country’s supreme court.

Lawmakers in California are weighing proposals that aim to give independent workers the same benefits as employees. Such mandates, however, risk driving up labor and consumer costs, accelerating automation, and crushing startups that want to experiment with new modes of employment.

Newsom should intervene. By pushing legislators to devise rules that balance the concerns of both workers and industry, he can set an example for others to follow.

There’s pressure to act quickly. In a decision last April, the California Supreme Court ruled that Dynamex Operations West, Inc., a same-day courier service, had to satisfy a strict three-part test in order to continue classifying its delivery drivers as independent contractors. Broadly applied, the ruling could force online companies to designate nearly all workers who use their platforms as employees.

This might make sense if companies were using large numbers of unprotected freelancers as the equivalent of full-time employees, but that’s not the case. Despite the proliferation of Uber-style apps, recent data shows that the share of U.S. workers in non-traditional jobs has remained steady for the last decade, at around 7 percent. The majority of independent workers don’t rely solely on gigs for their livelihoods: They use online platforms to supplement income from other jobs.

Tech companies are pushing California’s legislature to block the Dynamex standard from becoming statewide law. The industry is right to oppose such sweeping regulations — but wrong to prevent more limited reforms that could clarify the status of workers in the gig economy and reduce litigation in the process.

Newsom should look to strike a deal. He should persuade the tech industry to accept legislation that gives gig workers more benefits than they currently receive, including anti-discrimination protections and access to portable benefits, but not the full range of benefits that typically flow to hourly employees, including overtime pay and unemployment insurance.

To satisfy demands from labor groups, California could give digital-platform workers organizing rights and a way to bargain collectively — a model the city of Seattle has introduced for domestic workers such as nannies, cleaners and home caregivers.

A grand bargain for California’s gig economy workers won’t please all sides. But it would avoid serious harm to innovation and work opportunities, and move the issue from the courts to the legislative arena, where it belongs.